• Chinese equities soar, NZD rate declines on weaker fiscal outlook
  • NZDUSD could be on its way towards 0.70
  • NZDCAD has seen a major reversal, could continue lower

Asian session brought some individual movements on Wednesday as some Chinese equities soared and NZD lost ground amid otherwise relatively benign session. The Japanese yen is the strongest G10 currency this morning but a change on USDJPY (0.12%) has been minimal while a decline of New Zealand’s dollar has been much stronger. 

The New Zealand’s currency has been on a losing streak as of late as weak domestic data were compounded with a cautious approach from the RBNZ. A government has played its part as well today. A reason behind NZD decline is a more cautious forecasts from Treasury for the 2018 budget year that ends in June 2018. The Treasury sees GDP growth in this period of 3.5%, down from 3.7% previously but what is equally important, budget surpluses for 2019 – 2021 are now seen lower than previously estimated.

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NZD positioning remains elevated – a risk for the currency. Source: Bloomberg 

Sure a combination of 3.5% GDP growth and a budget SURPLUS when many countries face big holes in their public finances could still be a reason for envy but expectations for the kiwi had been high. Take a look at speculative positioning in NZD which was at all time high quite recently and while it has been reduced a bit, it remains elevated so any bad news could lead to weaker NZD.

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NZDUSD remains in an upward channel but could test a lower limit. Source: xStation5 

Moving to NZDUSD the pair remains in an upward channel but after reversing from the key zone around 0.75 it could be on its way towards a lower limit of this channel and that would be slightly below 0.70.

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 NZDCAD tumbles after reversing from a major zone. Source: xStation5

It’s worth paying attention to NZDCAD – this market has seen a major reversal from the crucial zone near the parity and now a mid-term support at 0.9225 has been broken as well. This could provide fuel for the sellers. NZDCAD is among our trade ideas for the current quarter (a full report can be accessed here).